The regulator alleges that the JPMorgan Chase & Co. subsidiary failed to correctly fingerprint employees in a timely manner.
The Financial Industry Regulatory Authority (FINRA) reports that it has fined J.P. Morgan Securities $1.25 million for allegedly “failing to conduct timely or adequate background checks on approximately 8,600, or 95 percent, of its non-registered associated persons from January 2009 through May 2017.”
J.P. Morgan Securities “neither admitted nor denied the charges, but consented to the entry of FINRA’s findings,” the regulatory authority points out.
An “associated person,” according to Sullivan & Cromwell partner Frederick Wertheim (writing in the Practicing Law Institute’s chapter on “Broker-Dealer and Associated Person Registration”), finds that the category of a “person associated” with a FINRA member includes a “natural person who is registered or has applied for registration; a sole proprietor, partner, officer, director, or branch manager of a member firm or a natural person occupying a similar status or performing a similar function; a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by the member firm, whether or not registered or exempt from registration; and, for purposes of investigations only, persons named on Schedule A to Form BD.”
(Form BD is the SEC’s uniform application for broker-dealer registration. Schedule A provides information about direct owners and executive officers. Schedule A also asks if there are any indirect owners. Schedule B specifically addresses those indirect owners.)
“In many cases there will be a substantial, if not total, overlap between a member firm’s registered personnel and its associated persons,” according to FINRA’s bylaws.
Federal securities laws “require broker-dealers to fingerprint certain associated persons working in a non-registered capacity who may present a risk to customers based on their positions.”
According to FINRA, fingerprinting “helps firms identify if a person has been convicted of crimes that would disqualify them from being associated with a firm, absent explicit regulatory approval. Federal banking laws require banks to conduct similar checks on banking employees using a more limited list of disqualifying events.”
According to FINRA’s findings, “for more than eight years, J.P. Morgan did not fingerprint approximately 2,000 of its non-registered associated persons in a timely manner, preventing the firm from determining whether those persons might be disqualified from working at the firm. In addition, the firm fingerprinted other non-registered associated persons but limited its screening to criminal convictions specified in federal banking laws and an internally created list. In total, the firm did not appropriately screen 8,600 individuals for all felony convictions or for disciplinary actions by financial regulators.”
Also according to FINRA’s findings, “four individuals who were subject to a statutory disqualification because of a criminal conviction were allowed to associate, or remain associated, with the firm during the relevant time period. One of the four individuals was associated with the firm for 10 years; and another for eight years.”
FINRA’s mandate is the regulation of brokerage firms “doing business with the public in the United States.” Its member firms “play an important gatekeeper role in keeping bad actors from harming investors,” Susan Schroeder, executive vice president of FINRA’s department of enforcement, says in the regulatory authority’s statement. “Firms have a clear responsibility to appropriately screen all employees for past criminal or regulatory events that can disqualify individuals from associating with member firms, even in a non-registered capacity.”
J.P. Morgan Securities is a wholly-owned subsidiary of JPMorgan Chase & Co., and has been registered with the SEC as a broker-dealer since 1985 and as an investment adviser since 1965.
FTF News contacted three JPMorgan media representatives for comment about the FINRA fine, as well as for an explanation of how, for more than eight years, J.P. Morgan Securities neglected to “fingerprint approximately 2,000 of its non-registered associated persons in a timely manner, preventing the firm from determining whether those persons might be disqualified from working at the firm.”
“We self-reported this matter and are pleased it’s now behind us,” a JPMorgan media representative replied. “We are committed to having appropriate controls to comply with regulatory requirements.”
lnvestors and others searching for insights into the disciplinary history of American brokers and financial firms can avail themselves of FINRA’s BrokerCheck service, which is at www.finra.org/brokercheck, as well as at (800) 289-9999.